What is AP automation?
AP automation, short for accounts payable automation, is the use of software to automate part or all of the accounts payable process. It aims to create efficiency in the accounts payable workflow by digitizing how vendor invoices are received, processed, and stored.
In removing manual processes and the need for paper-based systems, AP automation can bring about fundamental changes in the way accounts payable departments function. Invoices are received digitally, processed automatically, and stored centrally, minimizing the risk of human error, and freeing up time previously spent on laborious tasks.
AP automation systems have revolutionized the way that organizations deal with the accounts payable process. The value on offer from adopting accounts payable automation is clear, which is why the market size is predicted to reach $7.5 billion by 2030.
How does AP automation work?
AP automation is typically implemented through a dedicated software solution connected with an ERP. It has the functionality to automate each step of the accounts payable process.
Firstly, on receipt of an invoice from a supplier, AP automation software uses optical character recognition (OCR) or another form of language processing system to extract information from digital or paper-based invoices. Accurate to begin with, this function only improves over time as machine learning helps the software to recognize patterns and optimize accuracy.
Once the invoice data has been captured, the details are automatically matched to existing purchase orders and goods receipts and sent digitally to the relevant team for approval. After approval, payment can be made as usual. Finally, the invoice is securely archived in a central repository, which allows for easy access by approved stakeholders.
Throughout the entire process, the trail of the invoice is recorded digitally with date stamps. This allows for easy AP auditing in the future, replacing arduous manual auditing routines.
AP automation process
- A vendor invoice is received in paper form or a valid digital format (e.g. PDF)
- If paper-based, the invoice is manually scanned to create a digital copy
- OCR technology is used to automatically extract all the important data from the digital invoice, including the invoice amount, ledger code, and date
- The invoice is automatically matched to the associated purchase order and goods receipt (three-way matching) stored in the digital system
- According to the established routing process, the invoice is forwarded to the relevant party for approval
- Once approved, payment can be made as usual through the typical channel, and the invoice will be marked as paid in the digital system
- Finally, the invoice is archived digitally in its relevant place, where it can be found by anyone with access to the central repository
Benefits of AP automation
There’s a good reason that AP automation is being implemented by organizations of all types across the world—it has the potential to massively increase the efficiency and accuracy of the accounts payable process.
Here are some of the key tangible benefits of implementing an AP automation system:
Automating elements of the accounts payable process such as data extraction and three-way matching removes the need for as many human ‘touchpoints’ and makes the entire function quicker. This results in the AP department having more time to spend on other value-driving activities.
AP automation software often integrates with other parts of the ERP, such as supplier information management systems and cash flow forecasting modules. The integration between these elements means broad operational efficiencies can be brought about, with more accurate data shared between systems.
Even the best AP departments make mistakes sometimes. Removing manual elements of the AP process, including invoice data extraction, minimizes the opportunity for human error and reduces the risk of duplicate payments or fraud. Discrepancies between vendor invoices and purchase orders can also be spotted more accurately.
As a by-product of reducing the need for manual intervention, AP automation helps AP departments to reduce their operating costs. It also side-steps the requirement for manual file storage, postage, and material costs (for paper invoices) making savings elsewhere.
Finally, reducing the need for paper-based invoices means that organizations can take steps toward achieving their ESG objectives. An entirely paperless accounts payable process has benefits of its own and implementing automation software is often the first step to reaching them.
Automating your accounts payable
Reaping the benefits of accounts payable automation is a more reachable goal than ever before. Invoice automation software is designed to make switching to digital accounts payable management more straightforward. It allows you to simplify the way you handle invoice processing, encourage suppliers to upload their own invoices and increase visibility across accounts payable.